Sunday, January 30, 2011

Paper & Paper Products Industry: Two Companies Stand Out


The paper and paper products industry has numerous market segments ranging from facial tissue to the paperboard packaging segment. The paper and paper products industry provides some overlap with the container and packaging industry in that there are companies in both may produce paperboard. However, for the purpose of this article, we are producers of containerboard and corrugated containers.

The Paperboard Packaging Council has suggested that the packaging segment will continue to see weakness for the remainder of 2011 due to reduced consumer spending but that an uptick will occur in 2012-14. They also identify several end-use markets with growth potential: pharmaceuticals and frozen and take-out foods.
The full article is available at:


Sunday, January 23, 2011

The Best in Coal

Coal is probably our most abundant energy resource. We have provable reserves, within our own borders, equal to a quarter of the world’s reserves and more coal than any other country in the world. Coal generates approximately 50% of our electricity, more than any other energy source. Coal can meet our domestic energy for the next 100 years. Coal also costs a fraction of alternative sources of energy such as natural gas.

The complete article is available at:











Disclosure: The author has no position in any company mentioned in this article and will not take a position within 72 hours of publication

Sunday, January 9, 2011

DIY Investing


The DIY investor has a bewildering range of styles to choose from, ranging from day trading to buy and forget. He or she has a decided advantage over the professional money manager. The private investor has flexibility whereas money managers are generally restricted to a particular style-box. The style-box, as far as I can tell, is no more than a marketing gimmick. Money managers have the additional pressure of meeting quarterly expectations.

The successful private investor chooses a strategy that works for them. Some folks like the action of momentum investing and others are much more risk averse and stick with large cap, dividend paying names. The market is big enough for everyone.
The approach that works well with us focuses on quantitative measures. We are not too interested in the “story” behind a name or management’s explanations or expectations. We rather let the numbers do the talking.

Our approach emphasizes valuation, cash flow generation, profitability and price momentum. Valuation and cash flow generation appear to be the most important drivers of excess returns.

One of our favorite valuation ratios is enterprise value to EBITDA. In the long run, no company succeeds without strong cash flow generation. The measure we look at is cash return on invested capital. There are several measures of profitability. Many investors are attracted to companies reporting high return on equity. The potential for excess returns is diminished if the market does not recognize the opportunity offered by a particular company. By combining low valuation as measured by EV/EBITDA, successful execution by the subject company (ROE and CFROI), and price momentum, we have the opportunity to generate excellent returns.

The companies listed here satisfy our criteria and are worth a close look.



01/07/11




ticker
company
Price
CFROI
EV/EBITDA
ROE_12m
52W Price Range %
ALK
Alaska Air Group, Inc.
62.72
12.13
6.53
22.30
98.78
AGP
AMERIGROUP Corporation
46.83
15.84
4.29
22.40
98.74
ASMI
ASM International N.V. (USA)
34.45
19.21
6.85
25.30
86.63
CBPO
China Biologic Products Inc
16.06
25.45
5.40
62.00
85.60
CLW
Clearwater Paper Corp
81.20
23.38
7.06
21.60
92.77
CLD
Cloud Peak Energy Inc.
22.46
16.54
6.12
78.30
87.00
SOLR
GT Solar International, Inc.
10.50
17.45
6.91
64.80
97.22
IPXL
Impax Laboratories, Inc.
20.68
44.31
2.25
110.50
88.74
KS
KapStone Paper and Packaging C
16.10
22.89
6.63
21.00
96.72
NSR
Neustar, Inc
26.99
18.23
7.42
20.40
97.28
PZZA
Papa John's Int'l, Inc.
28.14
14.38
7.31
27.50
90.45
SNDK
SanDisk Corporation
52.37
19.47
7.64
25.90
96.35
TEO
Telecom Argentina S.A. (ADR)
25.65
26.23
6.95
30.70
87.86
TSP
Telecomunicacoes de Sao Paulo
24.27
15.68
4.09
24.50
83.27
TER
Teradyne, Inc.
13.70
27.76
5.41
40.00
86.79
USMO
USA Mobility, Inc.
18.33
42.53
3.12
25.20
90.12
WTI
W&T Offshore, Inc.
18.04
27.61
4.69
39.20
83.46

Disclosure: Author has long positions AGP, NSR, SNDK and TEO.

Sunday, January 2, 2011

Starting Lineup for 2011

At the start of the calendar year, there is a tradition of offering stock picks for the year. Our list totals nineteen names. There is no attempt to diversify across industry groups or to focus on market capitalization. The companies represent a narrow grouping of technology, retail, consumer and a smattering of industrial companies. Five of the companies are in the retail sector. They range in size (on the basis of market cap) from $271 million to $294,998 million.

The thread that binds all these companies is one of consistency. Each of these companies has been profitable in each of the past seven years; each has been free cash flow positive each year. They all have strong balance sheets and demonstrate the ability to grow sales, earnings from continuing operations, and free cash flow. Each company is expected to grow earnings going forward. 

We believe each of the listed companies will show strong results in 2011. That being said, it is not a static list. Circumstances change as does our opinion. Readers should do their own due diligence and make up their own minds about each name. 

Company
Ticker
Price
Comment
AAP
$66.15
Advance Auto Parts, Inc. (Advance) is a specialty retailer of automotive aftermarket parts, accessories, batteries and maintenance items primarily operating within the United States.
AAPL
$322.56
Apple Inc. (Apple) designs, manufactures and markets a range of personal computers, mobile communication and media devices, and portable digital music players, and sells a range of related software, services, peripherals, networking solutions, and third-party digital content and applications.
BCPC
$33.81
Balchem Corporation (Balchem) is engaged in the development, manufacture and marketing of specialty performance ingredients and products for the food, nutritional, feed, pharmaceutical and medical sterilization industries. It has three reportable segments: Specialty Products; Food, Pharma & Nutrition; and Animal Nutrition & Health.
BBBY
$49.15
Bed Bath & Beyond Inc., along with its subsidiaries, is a chain of retail stores, operating under the names Bed Bath & Beyond (BBB), Christmas Tree Shops (CTS), Harmon and Harmon Face Values (Harmon) and buybuy BABY
CHRW
$80.19
C.H. Robinson Worldwide, Inc. (C.H. Robinson) is a third party logistics company. It provides freight transportation services and logistics solutions to companies of all sizes, in a variety of industries.
DLTR
$56.08
Dollar Tree, Inc. (Dollar Tree) is an operator of discount variety stores offering merchandise at the fixed price of one dollar.
FDS
$93.76
FactSet Research Systems Inc. (FactSet) is a provider of global financial and economic information, including fundamental financial data on tens of thousands of companies worldwide.
FDO
$49.71
Family Dollar Stores, Inc. (Family Dollar) operates a chain of more than 6,800 general merchandise retail discount stores in 44 states, providing primarily consumers with a selection of priced merchandise in neighborhood stores.
HANS
$52.28
Hansen Natural Corporation (Hansen) is a holding company. The Company, through its subsidiaries develops, markets, sells and distributes alternative beverage category natural sodas, fruit juices, juice blends, juice drinks, energy drinks and energy sports drinks, fruit juice smoothies and functional drinks, non-carbonated ready-to-drink iced teas, children’s multi-vitamin juice drinks,
JOYG
$86.75
Joy Global Inc. is a manufacturer and servicer of mining equipment for the extraction of coal and other minerals, and ores.
NTAP
$54.96
NetApp, Inc. (NetApp) is a provider of storage and data management solutions. The Company offers solutions for storing, managing, protecting and archiving business data.
NVO
$112.57
Novo Nordisk A/S is a Denmark-based health care company. It also focuses within areas, such as haemostasis management, growth hormone therapy and hormone replacement therapy. The Company operates in two business segments: diabetes care and biopharmaceuticals.
NVEC
$57.83
NVE Corporation (NVE) develops and sells devices that use spintronics, a nanotechnology. The Company manufactures spintronic products, including sensors and couplers that are used to acquire and transmit data.
ORCL
$31.30
Oracle Corporation is an enterprise software company. The Company develops, manufactures, markets, distributes and services database and middleware software, applications software and hardware systems, consisting primarily of computer server and storage products.
PETM
$39.82
PetSmart, Inc. (PetSmart) is a specialty provider of products, services and solutions for the lifetime needs of pets. The Company offers a line of products for all the life stages of pets, and offers various pet services, including professional grooming, training, boarding and day camp.
PCLN
$399.55
priceline.com Incorporated (priceline.com) is an online travel company, which offers a range of travel services, including hotel rooms, car rentals, airline tickets, vacation packages, cruises and destination services.
SBUX
$32.13
Starbucks Corporation (Starbucks) is the roaster and retailer of specialty coffee in the world, operating in more than 50 countries. Starbucks purchases and roasts whole bean coffees and sells them, along with handcrafted coffee and tea beverages and a variety of fresh food items, through Company-operated retail stores.
USNA
$43.45
USANA Health Sciences, Inc. (USANA) develops and manufactures high-quality, science-based nutritional and personal care products, with a commitment to continuous product innovation and sound scientific research.
VAR
$69.28
Varian Medical Systems, Inc. is engaged in he design, manufacture, sale and service of equipment and software products for treating cancer with radiotherapy, stereotactic radiosurgery and brachytherapy.

Someone may argue that I missed the boat on this list and they may be right. The average 52 week gain for these stocks is 52%. Gains ranged from a low of 27% for BBBY to 83% for PCLN. These market beating gains are not the result of short-term fads. All of these companies are proven to be consistent winners. 

Disclosure: Author has long positions in AAP, BCPC, FDS and NVEC.
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